Tara Stacom of Cushman & Wakefield.

“I’m more bullish today than I was in 2007,” said Cushman & Wakefield’s Tara Stacom of  1 World Trade and the outlook for the 1,776-foot tower that will offer 3.1 million square feet of Class A office space. “I did not think one of the first tenants would be a million-plus feet.”

Signing the lease with Condé Nast in May of this year was, for lack of a less hackneyed term, a game-changer for downtown Manhattan, especially as the area emerges not only from the Great Recession but from the malaise that characterized so much of the area since 9/11.

Other media companies have been part of the change, taking the baton, as it were, from the FIRE firms that traditionally power Class A space, in downtown or elsewhere in Manhattan. Spin magazine, the Daily News, American Media (publisher of The National Enquirer among other titles) Mansueto Ventures (owners of Fast Company and Inc. magazines) and Omnicom Group have all signed leases in or relocated to downtown Manhattan (for more on recent relocations to downtown, check out The Commercial Observer’s exhaustive chart, starting on page 14, from the Alliance for Downtown BID and Jones Lang LaSalle).

“We’re seeing interest from tech firms, more creative [firms],” Ms. Stacom said of 1 World Trade Center in particular, echoing the larger leasing trend for downtown. “And, of course, from law firms and government.”

Ms. Stacom believes the Condé Nast move will reverberate in ways yet imagined. “There will be a different mix of retail”—more Marc Jacobs than Brooks Brothers. “Downtown’s recovery has been far quicker than we anticipated. It’s just an extraordinary story,” said Ms. Stacom.

Tallying Tenant Incentives

The tenants have different reasons—an iconic address, the new construction, the architecture, modern amenities—but tenant incentives (T.I.’s) perhaps loom the largest when it comes to the recent shifts in downtown leasing.

While hard numbers for T.I.’s are difficult to nail down, brokers offered estimates. The standard work allowance package being offered at trophy space downtown is $60 per square foot, according to Peter Riguardi, president of the New York region for Jones Lang LaSalle. He believes 10 to 12 months of free rent can also be standard.

“Tenants definitely want a contribution to their build-out,” Ms. Stacom said. She added that if she signs a deal she is currently negotiating at 1 World Trade, the floors below the sky lobby will be 50 percent leased. Those floors are renting for $75 per square foot, and the rest of the tower, which is constructed up to the 77th floor, has yet to be priced but will be more expensive.

Though the pre-2001 vacancy rate was 3.2 (compared with the current 9.2) and neither occupancy rates nor asking rents downtown have rebounded to pre-2001 levels, optimism remains given the spate of media leases. And, as Ms. Stacom points out, the ascendancy of what will be North America’s highest tower is practically as well as symbolically important. “New Yorkers need this—we need the office stock.”

Compared with other world cities, New York suffers from a stunning dearth of Class A space, and much of what downtown had in particular was destroyed on 9/11 (or converted to condos shortly thereafter as companies fled the area). But as factors like the new Fulton Street transit hub, government incentives and continued residential conversions in the financial district merge, downtown has the potential to rival midtown—with that more diverse tenant base, besides.

Tech Plugs In

Mr. Riguardi said he finds the growth in tech the most notable, as that sector shows huge potential. As noted in a recent Jones Lang LaSalle report on downtown, “technology firms currently account for an aggregate three million square feet of demand throughout Manhattan.” And technology’s traditional stomping grounds, midtown south, are crowded to the point of 0 percent vacancy, according to some estimates. Thus, downtown as a prime option.

The open, collaboration-encouraging space that the large floor plates of 1 World Trade and other newer towers, like Silverstein Properties’s 7 World Trade Center, allow is part of the draw for tech and creative firms, but Mr. Riguardi also believes there is simply more need in general for quality space for tech tenants. In New York City, he said, “our product is so dated.”

1 W.T.C.’s Shadow

One World Trade’s automatic cachet was the entire draw for its second-biggest client after Condé Nast—the China Center, a complex consisting of just under 200,000 square feet on floors 64 through 69, which is being built out and rented by Beijing-based real estate firm Vantone.

“The Chinese feel the site represents validation that you are a global firm,” said Mr. Riguardi, who represented Vantone. Xue Ya, president at Vantone, says 1 World Trade was the only address in New York City that is widely recognized in China.

The 20-year lease with two 10-year renewal options was signed in 2009, though the parties had been in discussions since 2004. While work allowances were a concern, the one thing Vantone would not compromise on was accessibility. The firm wanted easy flow from its offices—which includes an events space, a conference center, a private club and a Chinese restaurant—to the ground level.

Ms. Ya suggested that her company’s move was not only strategic, but prescient, particularly given the past decade’s pessimism regarding development at the World Trade Center site. “We believed in the project from day one,” she said of 1 World Trade. “Too many people questioned us.” The firm hopes to create a haven for Chinese business at the landmark address, and Ms. Ya believes the investment in infrastructure is the key driver for the area. “In two more years, everything will change. The government’s investment will create value.”

As 1 World Trade has finally become a physical presence, other buildings downtown have benefited. For instance, SL Green took control of 100 Church about two years ago, and it is now 80 percent leased, according to Steve Durels, the REIT’s leasing director. Three full floors are still vacant, though Mr. Durels said he is in talks to lease “a significant portion” of what remains. He said asking rents were $36 per square foot. Meanwhile, 4 New York Plaza, where the Daily News moved last spring, has reached full occupancy.

As for perhaps the most closely watched prospective tenant for the area, Mr. Riguardi does not believe that Citigroup will make the move downtown. “They are still evaluating lots of alternatives. There is emotion,” he said, “and then there’s economics.”

gvoien@observer.com

Cassidy Turley's research guru Robert Sammons divines the signs...

Manhattan’s overall sublet availability slid to 10,475,178 square feet in July 2011, its lowest level since it stood at 9,312,836 in September 2008. Total sublease availability shot higher very quickly after that month (due in large part to the Lehman Brothers debacle and the ensuing financial crisis), climbing to 17,325,712 square feet, a whopping 86 percent, just eight months later (May 2009).

Today, we are well below the monthly average for the past 10 years—12,813,963 square feet—although we are currently almost twice as high as the low point during that same period, the 5,655,221 square feet achieved in December 2007. If we go even further back, past the last two recessions, overall sublease availability had been as low as a miniscule 1,508,783 square feet in May 2000.

The big question: Will sublet availability continue its improvement? Financial services firms in New York City are beginning to, once again, hand out pink slips (take your pick of reasons—dysfunction in D.C., Dodd-Frank, euro zone). If the economy doesn’t right itself soon, the contagion will spread even deeper into other sectors. The best estimate, at this point, is that the upset will not be overly severe (i.e., not a double-dip recession) and though there may be a bit of ebb and flow in sublet availability for the next few months, there will not be a sharp increase. Stay tuned.

tacitelli@observer.com :: Follow on Twitter @tacitelli

These post-modern literary digests save office markets.

Does not reading Vogue mean the terrorists will have won?

Unlikely, but Condé Nast’s 1.046 million square feet at 1 World Trade Center represent by far the single biggest company relocation downtown since 2005, showing a confidence in the area below Chambers Street, and a continuation of the rebuilding in the area post-9/11.

Other creative types are following suit. According to statistics obtained by The Transom, 18 percent of the 307 biggest company relocations downtown since 2005 were by what the Downtown Alliance—the behemoth business improvement district—calls “creative services” firms. These moves accounted for 33 percent of the relocation space leased since 2005—more square footage (2,406,855) than any other industry. By comparison, the city’s animating triumvirate of finance, insurance and real estate (let me stand next to your … ) accounted for 16 percent of relocations, covering 21 percent of the space taken overall.

Other big creative relocations post-9/11 include: Sirius XM Radio’s 250,000 square feet and Niche Media’s 45,000 at 100 Church Street (Sirius’s was third among all the deals, behind Condé and Morgan Stanley); American Media’s 99,054 and the Daily News’s 99,050, both at 4 New York Plaza; and American Lawyer’s 91,818 at 120 Broadway. (There’s even Poets & Writers’s 7,549 square feet at 90 Broad and The Paris Review’s 2,342 at 62 White!)

Six of the 10 biggest creative-services relocations were after 2007, suggesting that, while the likes of Aon and Empire Blue Cross acted earlier, these tweedier concerns were waiting to see what would happen down there. Or, more to the point, the Daily News (hell, even The Knot, which jumped on space at 195 Broadway earlier this year) was likely sniffing out bargains, such as the copiously chronicled one at 1 World Trade involving the Durst Organization, the Port Authority and Si Newhouse’s baby.

Although, given that most of the relocations were from offices in midtown, like 4 Times Square, downtown rents, even without incentives, must have seemed a steal at any point in the past six years. Rents in top-shelf midtown buildings average around $70 a square foot; in downtown, about $40.

tacitelli@observer.com  ::  Follow on Twitter @tacitelli

Ta-da!

Tata Consultancy Services, which provides IT and outsourcing to a nationwide clientele, has signed an early renewal and expansion lease at its U.S. headquarters on Park Avenue, The Commercial Observer has learned.

The company, which is part of the Tata Group, one of India’s largest conglomerates, arranged a 13,200-square-foot deal at 101 Park Avenue, where it has operated on the 26th floor for more than 20 years. The deal, which reflects an asking rent of $100 per square foot, will expand Tata’s office space from 10,238 square feet, brokers said.

Gus Field and John Cefaly of Cushman & Wakefield handled the building’s owner, HJ Kalikow & Co. Roshan Shah of CB Richard Ellis negotiated the 10-year lease for Tata following another deal he inked for the company at 1 World Financial Center in 2009.

jsederstrom@observer.com

Mr. Bernstein joined Colliers ABR, the precursor to Cassidy Turley, in 2007.

When it was announced in early 2007 that the Empire State Building would undertake an ambitious, $550 million renovation—the first of such grandeur since it was erected 76 years earlier—real estate observers stood divided on whether the effort was long overdue or, considering the looming economic crises, an unnecessarily expensive bet.

Given the 102-story tower’s 2.5 million square feet—not to mention its aging infrastructure, elevators and lobby—naysayers had reason to doubt the logic behind such a costly affair. Add to those challenges a mandate to replace the building’s jigsaw puzzle of 550 fractious users with a collection of far more prestigious, full-floor tenants and the endeavor seemed positively Sisyphean to some.

But whatever doubts those critics had certainly vanished within a year of the renovation’s commencement. In the summer of 2008, with only an eighth of the work done, French cosmetics firm Coty Inc. signed a game-changing, 90,000-square-foot lease on the entire 14th floor and part of the 15th floor, filling out space that, previously, had been divided among a hodgepodge of 14 smaller tenants. A year later, Coty took an additional 101,000 square feet at the skyscraper, with plans to consolidate in the future.

By far, it was the largest lease signed by a single tenant in several decades at the Empire State Building. More important, however, it was the transaction that legitimized the asset for what would soon become a parade of higher-caliber occupiers, who, with each deal, breathed new life into the icon controlled by Malkin Holdings.

But for Richard Bernstein, a principal and executive vice chairman with Cassidy Turley who negotiated the Coty deal, revitalizing the Empire State Building was, simply put, transactional frosting. Foremost among his client’s concerns, he said, was locating long-term space big enough to withstand a large-scale consolidation of its offices at 1 and 2 Park Avenue under one roof.

“It’s probably a bit of a reach to say we pioneered it, but we were really one of the first significant tenants to step up to the plate,” said Mr. Bernstein, a 20-year brokerage veteran who joined Cassidy Turley in 2007. “Long before a lot of the other guys, we made a strong commitment with Tony Malkin and his organization to become one of his first major tenants—when that transition story was still in its earliest phases.”

The deal was but one of the latest for Mr. Bernstein, who has negotiated for a litany of big clients like JPMorgan Chase, Citigroup, Random House and King & Spalding. It was his deal for international law firm King & Spalding over at 1185 Avenue of the Americas, in fact, that put the broker in contact with Mr. Malkin, who, back in the mid-1990s, owned that building.

Perhaps most indicative of the current economic malaise, however, was Mr. Bernstein’s deal for Random House, which, in the face of a downturn that struck publishers particularly hard, sought to significantly right-size its headquarters at 1745 Broadway—a tower built less than a decade ago and one that the publisher net-leases from Related. Indeed, in one of the larger instances of space reduction in the past several years, Random House endured a restacking exercise that slashed space from about 675,000 feet to 475,000. When all is said and done, employees at 1745 will occupy 10 fewer floors than before the recession.

As such, the publisher will sublease the space, with leases that expire in 2018. Already, Mr. Bernstein said, a number of financial services and law firms have shown interest, including at least one boutique money management tenant.

“But it’s not reflective in a headcount reduction,” said Mr. Bernstein of the decision by Random House to reduce its space. “They still have in excess of 1,300 employees in the building, and it’s consistent with a lot of our clients. They opened up the space, they came up with a far more open plan and it’s been a huge success. The quality of life reviews have really been very high as a result of this restacking exercise.”

But even for some of the most battle-scarred brokers, Mr. Bernstein’s path raises eyebrows. Indeed, at the very beginning of his career, the Long Island native took a job with ESG, where he climbed the ranks in the 1990s as the firm trudged through a series of name changes, staying with it when it became Insignia/ESG and then CB Richard Ellis. Shortly after he left the company to serve as president of Trammell Crow New York, CBRE snagged that real estate firm, too. Following that acquisition in 2007, Mr. Bernstein made a beeline for Colliers ABR. As real estate observers know, that company became Cassidy Turley last year, marking yet another merger.

“I’ve had a series of moves, which is probably fairly unusual for a lot of brokers,” said Mr. Bernstein, 58, who now lives with his wife and three daughters in White Plains, where the family has remained since the kids were young. “Once CB Richard Ellis acquired Crow, a lot of my colleagues said to me, ‘Remind me when you place a bet on the next game, so I know who not to bet on.’”

Despite frequent career turbulence, the changes have hardly disrupted his deal flow, which, following a sluggish 2008 and 2009, is once again busy.

Indeed, in the midst of a whirlwind of deals and the absence of several colleagues on summer vacations last week that forced him to keep his eyes on a number of balls, the broker described his schedule thusly: “I feel like a one-armed paper hanger,” said Mr. Bernstein. “I’ve been trying to cover, but it’s really, really been busy.”

jsederstrom@observer.com

How do they get along, exactly? Robert Sammons of Cassidy Turley breaks it down.

New York City and the financial services industry are thought to be B.F.F.’s (“best friends forever,” for those not in the know). The accompanying graph does, indeed, show the correlation between financial services jobs (banking, securities and insurance) and the Manhattan Class A vacancy rate. For the most part, the two statistics do follow the expected pattern: as financial jobs fall, the vacancy rate rises, and vice versa. But there are also some interesting variations worth pointing out.

First, despite financial jobs in the early 1990s being at their highest levels in the past 20 years (topping out at 381,300 in December 1991), the vacancy rate was also quite steep. That had more to do with almost 52 million square feet of new office product coming online between 1981 and 1991 than anything else. After sliding in the mid-1990s, financial jobs did tick up again later that decade and into 2000 (hitting 372,200 in October 2000), though not enough to account for such a steep decline in the vacancy rate. That had more to do with growth within the larger professional and business services category as well as the infamous new media sector, which was red-hot at that point (though about to fall off a cliff).

Since 2003, there has appeared to be a tighter connection between the two data sets, not surprisingly, since financial services was the star of the most recent boom and bust. But the New York of today is not as dependent on this sector as it once was—just compare the over 380,000 jobs in this field 20 years ago versus the 316,200 today. Thankfully, other industries have been filling in the gaps. One of them is—surprise!—new media. Hopefully, this time it sticks around.

tacitelli@observer.com

"There has been an increase in corporate tenants touring and moving into the building recently," said Tony Malkin, the president of Malkin Holdings, which supervises W&H's portfolio. In a statement, he also mentioned the building's repositioning as a "state-of-the-art office tower."

Access.1 Communications Corp., which manages radio and television stations in several states, inked a five-year deal for 4,176 square feet on the 14th floor; and SolArc, a commodity trading and risk management company, signed a three-year lease for 1,113 square feet on the 21st floor.

The asking rent was $45 per square foot for both spaces.

W & H recently spent $80 million upgrading the building with an energy-efficient glass curtain wall, a stone and marble lobby, and new entryways at both 34th and 33rd streets.

Chad Beck of Jones Lang LaSalle repped SolArc. Mitchell Arkin, Kelli Mekles and Haley Klein of Cushman & Wakefield represented the landlord in both transactions.

(Photo: Loopnet)

Cicatelli Associates, a public health nonprofit that uses education and research to foster healthful living, has signed a long-term renewal and expansion at the Newmark Holdings-owned 505 Eighth Avenue. Under the new deal, the group, which previously occupied part of the second floor, as well as all of the 16th and 20th will vacate its space on the second in exchange for the entire 19th, brokers involved with the deal told The Commercial Observer.

While currently occupying 24,755 square feet, the nonprofit will eventually grow to 33,446 feet as it moves toward a more contiguous office setting. The asking rent equated to approximately $40 per square foot.

Marc Shapses, Jason Schwartzenberg and Joe Messina of Studley represented the tenant in the deal while Eric Gural and Allen Gurevich of Newmark Knight Frank represented the owner.

“Contiguous expansion was absolutely critical for our business so we are extremely pleased the building could accommodate us,” said Cicatelli Associates president Barbara Cicatelli.

(Photo: Trinity)

FremantleMedia, among the largest producers of reality television brands in the world, including American Idol, America’s Got Talent and loads of other shows your kids watch, has signed an 8,000-square-foot lease at 435 Hudson Street. The group will occupy part of the fourth floor of the building, in part to consolidate all of its operations under one roof. In October, the group acquired a 60 percent share of @radical.media, a global media business that is also housed at the Trinity Real Estate-owned building. FremantleMedia is expected to relocate later this year after the space is renovated.

Marc Packman and Peter Fontanetta of Trinity Real Estate negotiated on behalf of the building’s owner, while Jeffrey Peck and Gary Kerper of Studley handled FremantleMedia.

“We determined that relocating to the home of @radical.media and shifting our New York City headquarters from midtown south to the media-centric Hudson Square submarket was the ideal solution for our organization given how closely we work together,” Keith Hindle, chief executive of FremantleMedia, said in a statement. “We are thrilled that Studley was able to accomplish both tasks and look forward to calling 435 Hudson Street our new home.”

jsederstrom@observer.com

Robert Sammons of Cassidy Turley on where midtown Class A availability is headed:

Direct availability for the midtown Class A segment fell to just under 11.9 million square feet in July, its lowest level since January 2009, when it registered 11.4 million square feet and was on its way up.  During the recent downturn, it reached a March 2010 high of 15.1 million square feet.

Still, there is a lot of room for improvement—the 10-year monthly average is 8.8 million square feet. But with top-quality, long-term sublet availability waning, tenants’ attention has turned to the generally more expensive direct availability. And as this direct space becomes more popular, expect pricing to rise further—indeed, that scenario has already begun to play out. Of course, the key to further improvement will be job growth,something that has stalled slightly over the past couple of months. On the flip side, there are no new buildings scheduled for delivery in midtown until 2014.

Thus, if we get through this most recent economic hiccup relatively unscathed (thank you, Washington, for delaying the recovery), the market could potentially tighten quickly and direct availability will fall through that 10-year monthly average in 2012.

tacitelli@observer.com  ::  Follow on Twitter @tacitelli